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Alcohol Fees Vs. Taxes: The Sinclair Decision

Warning: This post is primarily about arcane legal distinctions and standards that will (or should) be applied to what’s going on in San Francisco. If that’s not your pint of plain, you may want to ignore this post. Yesterday I dipped my toe in the mash tun that is the city of San Francisco’s proposed “Alcohol Mitigation Fee Ordinance” (AMFO). The reason they’re characterizing it as a “fee” instead of a “tax” has to do with politics. A fee doesn’t require a two-thirds vote like a tax, just a simple majority.

Another odd detail that’s missing is a requirement for this type of fee is that a Nexus Study be done, and the proposed ordinance does indeed make reference to it on Page 3, where they claim it’s on file with the Clerk of the Board of Supervisors but leave a blank space for the file number. The reason it’s left blank is because there is no completed Nexus Study, as required. The proponents of the ordinance claim it will be completed in a week, but then why didn’t they wait until it was done before introducing the fee ordinance? If that’s a requirement, it seems they’ve jumped the gun, and this will give opponents less time to review the Nexus Study, which doesn’t seem at all fair.

There’s also no mention in the language exactly how they will collect from companies who do business in San Francisco but have no offices in the city, and thus are outside the city’s jurisdiction?

The earlier draft version of the AMFO included the language “ethanol ounce.” While nobody was sure how that was being designed, it’s now moot because the final document changed the language at the 11h hour to “ounce of alcohol” which is still rather vague and subject to a variety of interpretations as to how it will be applied. If I had to guess, I’d say that it’s possible that the strong spirits lobby got that change made since it would impact them the most by reducing their proportional taxes while beer would get hit the hardest. Curiously, all of the news reports I’ve seen, such as the one from KTVU Channel 2, a typical example, continues to use the phrase “ounce of ethanol” suggesting the mainstream media is working off of earlier versions or not looking at the source document at all. In either event, it’s not exactly stellar reporting and gives the public who reads that the wrong impression of what the AMFO will actually be doing.

But the biggest hurdle is one that’s been in place since 1997, when the California Supreme Court decided the case of Sinclair Paint Co. v. State Board of Equalization, et al. In that seminal case, the state tried to impose a fee on paint companies for potential harm caused by lead paint. Here’s a summary, from the Pillsbury Tax Page: “The Supreme Court held that case law clearly indicates that the police power is broad enough to include mandatory remedial measures to mitigate the past, present, or future adverse impact of the fee payer’s operations, at least where, as here, the measure requires a causal connection or nexus between the product and its adverse effects.” [my emphasis.] What that means is that a “fee” of this type in order to be constitutional and not need a two-thirds majority like any other tax (in other words to keep its “fee status”) it must be proven to have a direct link to the harm being caused by the product being taxed … uh, excuse me, having a fee imposed on it.

In their conclusion, Pillsbury characterizes these fees as camouflaged taxes.

The potential impact of Sinclair is tremendous since it is completely dependent upon the Legislature’s propensity to camouflage taxes as fees. Virtually every industry can be found to place some type of burden on society and now the Court has only limited the Legislature’s ability to impose fees on those industries within the bounds of its inventiveness. It is difficult, if not impossible, to reconcile Sinclair with the state of the law existing prior thereto.

And for the past thirteen years that’s been the standard and remains the controlling case. That means that the AMFO has to “prove” a direct link from the alcohol and the harm they claim is placing such an onerous burden on city resources. In the first two pages of the AMFO, they cite several studies they believe show such a link. But they’re wrong. For every study cited, I could produce ten that says the opposite, including studies that show that the moderate consumption of alcohol makes a person healthier than abstaining. To me, that suggests that trying to keep people from drinking is reckless endangerment or at least is putting the health of every adult who drinks moderately and responsibly at risk. And some of the studies mentioned aren’t even cited, meaning there’s no way to even confirm they say what the AMFO says they do. To say that their “proof” is shoddy is an understatement.

But, as usual, that doesn’t stop Bruce Lee Livingston, executive director of Marin Institute, from trotting out his favorite bullshit line, modified for the specific occasion. “It’s time for Big Alcohol, including wholesalers, to pay its fair share. A local alcohol charge for harm fee is long overdue.” I’m so tired of having to address this each and every time they give voice to this lie. As I’ve said many, many times, no other product save tobacco pays more taxes than alcohol already. To say that there’s some “fair” amount that alcohol companies should be paying is utter nonsense. There’s no amount high enough that would actually satisfy the Marin Institute, all they want to do in reality is put all alcohol companies out of business, the economy and a majority of people’s wishes be damned.

Comments

All “sin taxes” are BS when carried to extremes a la what the Marin Institute idiots propose. NYC just imposed another huge tax on cigarettes, bringing the per-pack price there to $11 & turning the bootleggers back on big-time.

I’ve traveled a lot the last 25-30 yrs to a lot of states. CA has one of the highest state sales taxes, but currently cheaper liquor than most any other state (thanks to the elimination of the fixed prices in the late 70’s, which spawned all the discounters). MD & DC are also quite reasonable for booze, as is FL. In states where the stores are state-owned (WA, PA, VA, Carolinas, et al) or the state fixes the prices private owners must charge retail (as in OR), booze is more expensive to buy for personal use. However, drinks in bars often are no more/less expensive than in CA because overhead costs usually are way cheaper elsewhere than here.

Craft beer pricing in bars/brewpubs everywhere I’ve been varies the least; at retail stores, the locals are cheaper than those shipped any distance.

The alcohol industry has now been monopolized by a few large multi-national corporations based outside of the U.S.A. These multi-nationals pay higher taxes in their home country than here. They should pay up since they make so much money out of California residents. They need to know that they cant just make a buck on our backs and have us pay the tab for the problems left behind from their product.

There are also over 1,500 small breweries in America, and over 120 in California alone. Most are small, family-owned breweries that you’re trying to harm. Even if it’s the big companies that are your target, what you’re trying to do will harm the small ones, as well, not to mention all the related businesses (distributors, retailers, restaurants, pubs, bars, suppliers, ingredient companies, farmers, etc.) that will be harmed by your efforts, too. It’s like using an atomic bomb when a firecracker is called for. The collateral damage is uncalled for. If your goal is only to go after the big boys (which I suspect is not true) then you should be trying strategies that don’t harm everybody.

But let’s talk about these multi-nationals paying more taxes abroad in their home countries. Why do you even care if that’s true? What business is it of the Marin Institute? Every company in many other countries have higher taxes because most have universal health care and other social programs. Our health care, on the other hands, sucks, but it’s kept taxes lower here. But it’s completely and utterly irrelevant as a rationale for raising taxes in the U.S.

And here’s another head-scratcher. Why should a company have to pay more taxes because they’re successful? If that’s your reasoning, go after oil companies and insurance companies. Because a company “make[s] so much money out of California residents” or that they “make a buck on our backs” makes you sound like someone who doesn’t understand what you’re saying. What does that even mean? People buy alcohol because they want to (a small minority of people aside), and because they enjoy it.

And this idea that companies should have to pay for how people use their products is laughable. Start going after gun and bullet manufacturers for every murder. Arrest cattle ranchers for the red meat that causes so much heart disease and health care burdens and other “problems left behind from their product.” Let’s go after the makers of high fructose corn syrup for all the unhealthy people “left behind from their product.” Virtually everything you can buy can be used to do something bad to one’s self or other people. Should all those companies be similarly treated? The economy would crumble. So why do you think alcohol is the only industry that has to pay for the minority of people who abuse their products? Why is it different for every other industry in the world? Explain it to me, won’t you?

So, Joaquin, sorry to tell you, but many of the craft brewers discussed on this site are NOT based outside of the United States and they are NOT the evil, money grubbing, multi-national scoundrels you imagine them to be, but, you know what, who CARES?!? Companies are ultimately set up to make money. Oh, but these are evil faceless multi-nationals and therefore must be made to pay up, because alcohol can cause problems. Sigh, keep up the fight Jay. All I ask these days is a bit of common sense and a modicum of personal responsibility. Sometimes I wonder why that seems so difficult. Personal responsibility in 2010?!!? Riiiiight!